What's the Difference Between How Employees and Self-Employed People Deduct Health Insurance?

Health insurance premiums can be deductible for both employees and self-employed people, but the way it works is quite different. Employees who pay premiums through a payroll deduction are typically paying with pre-tax dollars, which means the premiums reduce their taxable wages before tax is ever calculated — no extra step needed on their tax return. Self-employed people pay their own premiums with after-tax dollars and then deduct those premiums as an above-the-line deduction on their personal tax return, which reduces their adjusted gross income. This self-employed health insurance deduction can cover premiums for the business owner, their spouse, and dependents, including children under 27. However, self-employed people can't claim this deduction if they were eligible to participate in an employer-sponsored health plan (their own or a spouse's) during the months they're claiming the deduction.